When Businesses Develop New Businesses

By Barbara Elmore

Before one tries to define what internal corporate ventures are, it's important
to note what they are not.

Although internal corporate ventures involve people and entrepreneurship, they
are not the same things as individuals starting a business. And although they
might involve new products and processes, they are not the same as new product
development.

The distinctions are key to getting the right answers about what makes an internal
corporate venture work, said Kevin Johnson, a new professor at Baylor's Hankamer
School of Business. His research reveals fresh information about corporations
starting new businesses, and why they fail. He's looking for answers that will
help them succeed.

The former engineer turned businessman turned professor is just beginning his
work in the broad area of corporate entrepreneurship. The themes he's focusing
on include internal corporate venturing, new venture creation strategies and
business and technology innovation.

The distinction between individual and corporate entrepreneurship is an important
one because of the dynamics that take place, said Johnson -- "not the
least of which are the resources available," he said. The individual entrepreneur
generally has more limited resources than the established corporation.

It's important to separate product development from the study, too. Although
developing new products within an existing corporation might overlap with internal
corporate ventures, new product development doesn't require the establishment
of a new organization, noted Johnson, and is not intended to. A new corporate
venture is one that becomes a new business, he said, using the example of a
refrigerator manufacturer taking his product into the recreational vehicle market.
"Adding new features is not a new business," said Johnson. "That's
product extension or modification. When the refrigerator was taken into the
recreational vehicle market, that represented a new business. Think of a hospital
starting a business to provide fitness training. It can be a new business for
them."

A new venture can be based on a product, market, technology, service, or a
process, he noted. And research into internal corporate ventures is important
because they represent economic growth and development for corporations and
the communities they serve. Further, corporations invest billions in new businesses
to remain innovative, competitive and avoid stagnation.

Even so, the majority of new ventures fail. "We're not talking about
50-50," he said. "We're talking about 90 percent." Depending
on how one defines failure, the rate can sometimes drop to 50 percent. "Fifty
percent is still no better than chance, and we want something better than that."

His goal is to find out what drives success for new corporate ventures, and
one important discovery shows that the skills that go into successfully running
a business are not the same skills that go into starting a business. "Established
managers think they can start up a new corporate venture," Johnson said.
"But the same skills don't work."

Experienced managers also might think they can successfully create a startup
venture because they are doing product development. "It's not quite the
same," Johnson noted.

Johnson has developed and tested a new model based on performance. Some of
his findings are in the areas of processes, resources, strategy and structure.
Here's how some of those have played out thus far:

Similarity

Johnson defines similarity in terms of product, technologies and markets, and
looks at how the new venture is related to what a corporation is already doing.
New ventures differ somewhat from a corporation's existing businesses, but most
research indicates similarity is important. Johnson is testing that assumption.

Resources

His preliminary research, gleaned from surveys and interviews, shows that lots
of money is not the answer, but having the right people in place may play an
important role. "Organizations are actually starting to train people to
be entrepreneurs within a company," he added.

Putting more financial resources into a new corporate venture may lead to complacency,
he noted. "You don't have the desire, the motivation, the urgency if you
have tons of resources available to you. The independent entrepreneur has that
urgency. It focuses their efforts."

Other areas Johnson examined include autonomy, strategy, and positioning. He
asked such questions as, "When you have a business startup, how do people
working on that startup get compensated? There could be conflict between startup
and existing businesses within a company. There's a struggle for resources.
How do you organize the venture around existing businesses? Is it linked structurally
with them, or is it located somewhere else?"

His current research also studies whether managers of a venture need to go
into it with a plan.
"Preliminary examination shows that it looks planned," Johnson said.
"That suggests to me that managers need to have a goal in mind -- what
they're going to do and how to do it. What I suspect is going on is that the
strategy could actually be changing as the venture is developing."

The X-factor

Corporations of course believe their ventures will add value to their company,
Johnson noted. "When I ask my respondents about what I call the X-factor,
I ask how clear were the venture managers in terms of this X-factor. It was
important that the organization understood this X-factor."

Although this is last on his list, it might turn into one Johnson's more important
discoveries. Also important is the similarity between that venture and the parent
company, "because it affects our understanding of the market or the products
or technologies. Also, because it is a new business, what is its X-factor? These
two tie together."

Johnson believes some of his findings may challenge prior research, which would
suggest that the landscape has changed. "What worked in the past may not
work today," he added.

The Kentucky native received his bachelor's degree in engineering science from
Dartmouth and worked for several years before getting his master's in business
administration and his Ph.D. at Indiana University. Although he enjoyed business,
he knew he'd have to move to different areas of interest if he wanted to climb
the corporate ladder and make a difference. "So I had to decide whether
to stay in business and move on to other things, or go into academia,"
he said. He got involved in corporate entrepreneurship in the academic world
because he found it exciting and it was related to what he was doing in the
business world.